Source: The Canadian Press

Canada’s housing market, which has rebounded from last year’s lows, is expected stabilize in the coming years as higher mortgage rates and other factors offset the benefits of increased employment.

“It seems now that at least in Canada our economy is becoming a fair bit more positive so we shouldn’t see the big mad swings going forward,” said Bill Clark, senior economist at the Canada Mortgage and Housing Corp.

CMHC said Wednesday it expects an even stronger rebound in 2010 than previously forecast. It is now estimating there will be between 166,900 and 199,600 units started this year.

That’s more than the 149,081 started in 2009 and also higher than CMHC’s previous forecast in March, when it estimated 152,000 to 189,300 starts for 2010.

CMHC’s revised mid-point estimate for this year is 182,000 housing starts and that will moderate to 179,600 units in 2011, the federal Crown corporation said.

Construction of new single-detached homes is expected to increase by 21% to reach 96,100 in 2010. The growth will be shared by all provinces, with Ontario and Alberta seeing the largest increases. Single starts will decrease in 2011 to 88,200.

Clark said housing starts will become more in line with long-term demographic fundamentals and the home resale market will move towards “balanced conditions” over the next two years.

The housing market is considered to be “balanced” when the number of buyers and sellers is roughly equal. The market earlier this year was marked by an influx of buyers and a relative shortage of properties for sale, resulting in bidding wars in some markets and a sharp increase in sale prices nationally.

Among the factors driving buyers to the market were low mortgage rates, which have begun to rise, and changes in sales taxes that go into effect this year in Ontario and British Columbia.

Some buyers were also eager act before in federal rules that increased the amount of downpayments required for investment properties that took effect last month.

The Canadian residential real-estate market experienced the sharpest downturn in at least a decade from late 2008 to early 2009 as a result of a recession, rising unemployment and lack of consumer confidence.

In the latter half of 2009, however, sales volumes ramped up and prices recovered in many major market as buyers returned to take advantage of more moderate prices, historically low interest rates and an improved economy.

Some of the sales since mid-2009 are the result of pent-up demand, said the CMHC.

Once this demand is exhausted and mortgage rates gradually rise, the pace of activity in the resale market will ease.

CMHC expects between 484,000 and 513,300 existing homes will be sold this year, with a mid-point forecast of 497,300 units. Sales should then slip in 2011 to between 443,500 and 504,900 units, or a midpoint of 473,500 units. That’s down 4.8% from the midpoint forecast for 2010.

It says the rebalance should allow prices to stabilize through the end of 2010 and then increase modestly in 2011. By the fourth quarter, the average price of a home listed on the Multiple Listings Service (MLS) will be about $345,500, up from $341,614 in the same period of 2009. For 2011, prices are expected to increase to $350,800.

Gregory Klump, chief economist for the Canadian Real Estate Association, is a little more pessimistic about next year’s market. He expects resales will fall more than CMHC has forecast and that prices will actually decrease.

“We’re forecasting a small decline in average price next year, specifically because of price declines in Ontario and B.C.,” he said in an interview.

Klump doesn’t expect that prices will be skewed early next year as they have been in 2010 by factors such as the tax harmonization and tighter mortgage regulations.

“We are forecasting that in 2011 prices will sag specifically in Ontario and British Columbia with annual price increases in all the other province in and around the 2% rate of inflation.”

Newfoundland prices are expected to rise by about 4%.